Since this is the beginning of a new column it might be good to start
at the beginning and talk about why we are mixed up in this “handicapping”
business, and why horse race betting works so well in the much wider
world of gambling. The answer is found in “The Second Law Of Gambling.”

There
are not many “laws” in horse race handicapping, and handicappers who
have been around a while are fond of saying, “The only rule is—there
__are__ no rules.” This is certainly true when you get down to the
handicapping process and start trying to decide things like how to treat
a 30-day layoff, or whether or not to take the first pace/speed line,
fastest pace/speed line, or any of the other variables we face in each
and every race. These types of decisions are based on knowledge gained
by hard-won experience. They are situational in the context of each
race, and there is no rulebook.

One
of the first things to get past is that “handicapping” is the goal.
Making money is the goal and the two are not the same. I’m not all
__that__ old, but in my middling lifetime, I have seen the sport
change from an era when “handicapping” could in fact be the goal—because
odds were shaped in favor of my style, and short odds on some wins were
offset by easy, decent odds on others. So, for a very long time (*like
the early seventies through the early nineties*), I didn’t have to
look much beyond simple horse selection. It wasn’t until the Beyers
were first published and every nincompoop who could open a **Form**
had decent figures that drastically cut into my speed handicapping edge,
that I saw a big enough slump in my bottom line to ask what every selection-oriented
“handicapper” does sooner or later: “*Damn!* I’m a good handicapper—*Where’s
my profit?*” The answer was that I was almost totally focused on
__handicapping__ and—even though, by then, I really did know better—I
was not moving quickly enough in realizing that the game is __horse
race betting__, not “picking winners.” (This is group-therapy, so
I’ll be brutally honest: I was __worse__ than that—one of my biggest
giggles was to select all three money horses in order __and__ *predict
the lengths apart at the finish*—blissfully ignoring the fact that
in many situations, trifectas can be the worst underlays on the board.
I’m pleased to report I got well.)

Horse
race betting is the game, and making money is the goal—and this would
be a fool’s errand, __if it wasn’t for one fact__: *if you play
the game right, you can develop a positive edge*.

I
promise not to do many formulas (my fingers are only a little crossed),
but the absolute beauty of The Second Law Of Gambling is that it is
a pure mathematical certainty. Not that you will win but—depending
upon how you play—__you can achieve a positive edge__. Remember,
we’re talking about *gambling* here, and that fact should be front-page
news. If a casino suddenly announced a rule change that turned the
natural edge of the crapshooter from negative to even a *miniscule*
positive one, there would be bedlam at their tables. If the horse racing
industry ever figures out how to market this fact…well, racing might
take off, but don’t hold your breath. The third- or fourth-law of pari-mutuel
betting is that __the crowd is fundamentally lazy__—*which is great
for your edge*—but bad for marketing something that implies that
you might have to __work__ for a living, even at gambling. So here
is the Second Law, which makes horse race betting the most attractive
form of gambling there is (excuse the absence of really cute math symbols,
which aren’t available in Web fonts):

E
= Dr x Pw – R x Pl

In
plain English, this says that your edge is equal to the amount of money
you can potentially win, times the probability of winning, __minus__
the amount of money you place at risk, times the probability of losing.

I
won’t test your patience by plugging in numbers—you can if you want—but
take my word on two things: 1) it __can__ be positive for horse
race betting, and 2) __the actual edge for even strong players is probably
a hell of a lot less than you think__.

We’ve
all seen people toss around hot numbers like “25% ROI,” (now, *there’s*
a useless concept) —but, at any rate, we have cultivated the myth that
strong players have __big__ edges—of some sort or another. The fact
is that even __very__ strong players are playing in the +/-__3%
edge__ range! (__Edge__, remember, not ROI.)

So
why should this be front-page news? Because, with mathematical precision,
you can plug in the facts about other forms of gambling and prove the
obvious: virtually all other forms of gambling have a negative edge
for any player—regardless of skill, knowledge, or bankroll.

- Craps
proposition bets range from
*minus* 9% to *minus *17%!
- Roulette
=
*minus* 2.63
- Craps
pass line =
*minus* 1.41
- Blackjack
basic strategy =
*minus* 0.4
- Blackjack
Card Counting =
__positive__ 1.5
- Horse
race betting =
__positive__ 3+/-
- Poker
=
__positive__ % depending on skill

Of
all common forms of gambling, only Blackjack card counting, poker, and
horse race betting can show an edge *in favor of* the gambler.
But guess what? If you become a Blackjack genius and actually show
that tiny positive edge in Las Vegas, two former linebackers from BYU
will arrive at your table and escort you politely to the street. In
horse race betting, the pari-mutuel clerk could care less! Not only
that, you can actually *monkey with the equation* to improve your
edge! Try __that__ at a table game in Las Vegas. [Note that horse
race betting and table poker are situational and exact edges cannot
be calculated, as they can with the strict rules and known possibilities
of the other games.]

Please
take a look again at the equation. To make “E”—__your edge__—bigger,
*all you have to do is make the things on the left of the minus sign
bigger*—__and/or__—*make the stuff on the right of the minus
sign *__smaller__.

What’s
on the left of the minus sign? The amount of money possible to win—__your
odds__. And, your probability of winning—__your handicapping__.
What’s on the right? The amount of money at risk—__your bet__.
And, your probability of losing—(simply the remainder after your probability
of winning).

Probably
the most overlooked elements of the equation are on the right of the
minus sign—__avoiding and minimizing losses__ (or at least making
losses work for you by gaining some insight that increases the left
side for future bets).

*Everything
we do in horse race betting is wrapped in that little equation*.
If it were not possible to make “E” become positive, a more lucrative
horse-hobby might be trading horse action figures on eBay. Since it
__can__ be made to come out positive, in future columns *we just
have to worry about four little things*: improving handicapping,
improving odds, improving betting strategies, and decreasing losses.
This shouldn’t take very long….